As 4 Non Blondes might say, “hey, what’s going on?" Are we going to lose off balance sheet financing? A valid question, and one that comes up regularly, especially in seminars with sales people. Last summer the SEC issued its report on off balance sheet structures in which it recommended that the current lease accounting standards and guidance be reconsidered.
The FASB last week followed up on this report with its concurrence with the SEC recommendation, and a statement that the recommendation is consistent with the FASB’s current and planned activities. The FASB also noted that it is proactively pursuing a solution in conjunction with the International Accounting Standards Board (IASB). It appears that this solution will be a rework of the accounting for lease standards, including both FASB 13 and IAS 17, as it is believed that since, the two standards are in need of significant improvement, simply eliminating differences between the two is not the best use of the FASB’s and the IASB’s resources.
There are many pros and cons to making a change to FASB 13. I guess the real question these days is not a matter of if FASB 13 will be changed, but one of how, followed closely by one of when. In this regard, there is no need for lessors to go out and throw themselves into the sea. For instance, leasing is not considered a short tem convergence project in the recently released Memorandum of Understanding between the FASB and IASB. Nor is it even on the agenda. Instead, there is pre-agenda research underway and the goal is to have considered and made a decision about the scope and timing of a potential agenda project on leasing by 2008. Once leasing is added to the agenda, it will then go through additional years of review, public comments, and revisions - basically a long time.
So, back to the original question - are we going to lose off balance sheet financing? My answer is no. Although there eventually will be changes, off balance sheet leasing will survive. The form in which it will survive is really the unknown in all the deliberations and posturing that we currently see by the accounting regulators. At worst, the industry will have to go back to where we started – offering flexible, residual based (and off balance sheet) financing.
» Off Balance Sheet Financing from MidMarketMaven
Shawn Halladay, the author of Leasing Notes, another blog on the Know More Media network, writes about the complex nuances of leasing. Leasing has been a traditional means of creating off balance sheet financing for a business. There are a... [Read More]
Tracked on: March 1, 2006 10:26 PM | Permalink to Trackback